China is now the biggest holder of Japanese bonds after accumulating 11.2 trillion yen worth last year, their highest level since 2005.
From January to August period, China bought close to a net 9 trillion yen ($86.6 billion) worth of Japanese bonds, more than triple the amount it purchased from the same period in 2015. This occurred China after trimmed its holdings of U.S. Treasuries last year in anticipation of higher U.S. interest rates while shifting its money on Japanese bonds.
Meanwhile, Japanese investors in December sold 2.262 trillion yen ($20.1 billion) of U.S bonds, which was their biggest net sale since May 2013 when U.S. bonds crashed after Federal Reserve Chairman Ben Bernanke said that the central bank could taper bond buying.
The U.S. bonds were traditionally considered a safe investment until its prices have plunged due to Donald Trump's election victory as U.S. president in November.
That forced Japanese investors to dispose massive amounts of dollar-denominated debt such as U.S. Treasury securities to corporate bonds that they purchased.
The sale transpired just as soon as Japan overtook China as the biggest owner of U.S. government bonds, as the latter reduced its Treasury holdings to support its yuan.
At the end of October, Japan had $1.13 trillion of U.S. government debt, surpassing the $1.12 trillion held by China.
Meanwhile, China's holdings of US government bonds, which they started dumping on May 2016, dropped by $66 billion in November to $1.05 trillion.China liquidated part of its stake in U.S. debt is to stop a sizable decline in the yuan due to capital flight.
The Japanese government is luring investors to purchase the country's bonds, which despite the low and sometimes negative yields can still benefit investors from hedging.
Previously, the biggest holder of Japanese bonds were Luxemburg, followed by the United States, the United Kingdom and France. China was then fifth on that list.